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Rosneft’s Initial Public Offering

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  • Rosnefts Initial Public Offering

  • Initial Public OfferingAn initial public offering (IPO) is the process of selling stock to the public of a pre-existing operating company. The company, which already has owners and shareholders, is transferring a portion of this ownership to the public marketplace.The shares sold to the public may be either new shares that raise new capital, a primary offering, or existing shares that are sold by current shareholders (as part of their exit strategy), known as a secondary offering.

  • Initial Public OfferingAt the time of the initial public offering an additional set of shares, known as the green-shoe option or over-allotment allocation, may be offered as a primary offering as well. Usually limited to 15% of the total share offering, these shares are sold when it appears that there may be a greater demand than what is being offered.

  • Initial Public OfferingAfter deciding to go public, management of a company works with an underwriter, an investment banking firm that manages the offering and its structure. For smaller IPOs, the underwriter commonly accepts the deal on a best efforts basis. There is no guarantee that all shares will be sold at any specific price.More commonly on larger IPOs, the underwriter and the company agree to a firm commitment, in which the underwriter guarantees that it will sell all of the stock at the offer price. The underwriter is effectively purchasing the entire offer for re-sale.In recent years there have been a number of issues which follow an auction process, in which the underwriter lets the market set the price of the stock by auctioning off the company shares

  • Rosnefts Initial Public OfferingEstablished in 1993, Rosneft became a successor of Rosneftegaz, which in its turn was founded on the basis of the former Ministry of oil and gas industry. In 1995, a Russian government decree transformed Rosneft into an open joint stock company.

  • Rosnefts Initial Public Offering

    The company had only two obsolete refineries and several low-productive and poorly managed oil-producing assets.

    In October 1998, the Russian government decided to strengthen the Companys management so that Rosneft could once again become a key player on the Russian energy market. The government appointed the Companys current president, Sergey Bogdanchikov.

  • Rosnefts Initial Public Offering

    Rosneft had become profitable again by 2000, and from then on, the Company began a new period of strong growth, with average annual oil production increases of over 11%.Until 2005,firm was growing regularly. Since then the company has acquired controlling stakes in 4 Russian oil companies.(Udmurtneft,Yukons, Severnaya Neft, Verkhnechonskneftegaz)

  • Global Oil Companies by Reserves2005

  • Rosnefts Initial Public OfferingIn2005, the Company became the second-largest producer ofoil and gas inRussia, with anaverage daily output of1.69million barrels ofoil equivalent.

    In November 2005 the Russian government announced that it would sell somewhere between 20% and 30% of Rosneft, expecting to receive about $20 billion from an IPO.

    The shares would be placed on Russian and London Stock Exchange.

  • Rosnefts Initial Public OfferingIn the spring of 2006, as a result of rising oil and gas prices, the government cut the IPO by half because of the companys rising profits.

    June 26th, the Russian government, Rosnefts management, and its financial advisors had yet to decide on the final IPO price

    Valuations of the company ranged between $60 billion and $80 billion

    Rosneft had announced its intention to price the IPO between $5.85 and $7.85 per share.

  • Rosnefts Initial Public OfferingRosneft conducted one of the largest and most successful IPOs in global financial history after placing nearly 15% of its shares on stock exchanges in London and Moscow. The Companys offering raised USD 10.7 billion.(On July 14,2006 )Shares were priced at $7.55, near the upper end of the range forecast when the IPO was announced, resulting in Rosneft being valued at $79.8 billionThis meant that the government of Russia would still hold 85% of the shares.

  • Valuing RosneftComparablesRussian companies seem to fair quite well in terms of the markets assessment of their value based on earnings, cash flow, and enterprise valueDiscounted Cash FlowNone of the investment banks published (that we have access to) a DCF analysis on Rosneft prior to the IPOLukoil for all intents and purposes was considered a very very good base for comparison on DCF Lukoils valuation itself was based on interesting assumptions about prospective oil prices and on a very low estimate of the companys cost of capital

  • Valuing RosneftMarket Capitalization & ReservesAn analysis of global supermajors in the oil and gas sector indicates a very wide range of valuesThe market cap to reserve estimates show much higher values for the biggest western producers (ExxonMobil, Shell, BP) as opposed to significantly lower values for the big Russians (Gazprom, Lukoil) and other emerging market representatives (Petrobras).Value in the endRosneft had lobbied hard during June and early July for a market valuation of between $60 and $80 billion and the top end if possibleThey got it in the end nearly $80 billion in valuation

  • Valuation Summary

  • Rosnefts IPO

  • Rosnefts IPO

  • Rosnefts Share Price Since Issuance August 24, 2007

  • Rosnefts Share Price

  • Rosneft

    Ranked second among all Russian oil producers, behind Lukoil, and third behind Gazprom and Lukoil among combined Russian oil and gas producers.

    It owned two refineries, four export terminals, and 600 service stations.

    including proved crude oil reserves of 14.88 billion barrels.

    It was now the worlds second largest oil company.

  • Ali KAYTAN Gizmen NALBANTLI